How Benchmarking Can Help Countries Become More Digital

When it comes to understanding the pace of global digital evolution, the digital growth of developed countries usually has little to tell us about the digital future of developing ones. This has big implications for businesses, entrepreneurs, and innovators seeking growth beyond their home markets: there just isn’t a one-size-fits-all app or approach to building scale in the global digital economy. But if a country wants to become attractive to new investors, what it can do is learn from its better-connected peers and play some “digital catch-up.”

Since our research (which was done with support from MasterCard) on the Digital Evolution Index was published, we have spoken with many entrepreneurs, executives, and policy makers interested in accelerating their countries’ digital evolution. Boosting a country’s digital standing requires an array of considerations, including broadband access, the penetration and quality of the mobile network, internet access and freedoms, and access to financial services, credit cards, and electronic payments capabilities.

What we recommend during these conversations is to use a benchmarking approach: pick a benchmark country, usually a neighbor or a country perceived as a role model or even as a competitor, and ask, What would it take for us to catch up with where the benchmark is today? And then ask, What are our primary levers for closing the digital gap, and how do these levers compare in terms of their impact? Using these questions helps prioritize resources and facilitates coordination among those in the public, private, and social sectors — which hopefully will lead to real improvements.

A Case Study of Digital Catch-up in the ASEAN

The ASEAN region is an example of how benchmarking works. The six most prominent ASEAN member countries we tracked in the Digital Evolution Index rank among the fastest digitally advancing nations (see the chart below). Using the ASEAN for this analysis is relevant to the region’s roadmap for a common economic community by 2025, which has key milestones to be reached by the end of 2016.

According to a 2014 McKinsey report, the number of consuming households — i.e., households with annual income greater than $7,500 in purchasing power parity (PPP) — in the region is projected to double, to 125 million, by 2025. The region’s digital economy, a corollary to a rising middle class, is on a promising trajectory as well. Broadband subscriptions, facilitated by near universal mobile connectivity in the region, are expected to drive up internet penetration from 32% (199 million users) in 2014 to 48% (294 million users) by 2017.

One of the countries in the ASEAN, Singapore, ranks at the top in terms of its level of digital evolution. This is thanks, in part, to its world-class digital infrastructure. The country has sophisticated domestic consumers that enjoy affluence both in internet access and in the use of electronic payment instruments, such as bank cards. It is commonplace for executives and policy makers in five of the remaining countries — Malaysia, Indonesia, the Philippines, Vietnam, and Thailand — to benchmark themselves against Singapore. So if policy makers and innovators in the ASEAN region want to play digital catch-up and close the gap between their respective countries and Singapore, can they?

First, let’s review some of the challenges. Despite all the region’s positive trends, it has a large underbanked and underconnected population, three-fifths of whom live on less than $4 (PPP) per day in 2015, according to United Nations International Labor Organization estimates. Though the absolute numbers of those living on less than $4 (PPP) per day have come down from a high of 80% in the last decade, with the greatest reductions seen in the absolute numbers of those living on less than $2 (PPP) per day, the rates of increase in financial and digital inclusion leave a lot to be desired.

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In terms of digital evolution, the gap between Singapore and the rest of the ASEAN is striking. Singaporeans, on average, hold 3.8 payment cards and 1.6 mobile internet subscriptions, both greater than the average ownership in the next three ASEAN countries combined. Moreover, the gap between Singapore and the next five ASEAN countries is quite evident as one considers the “internet commerce gap,” the number of online users who do not shop online. While other ASEAN countries have online users, they aren’t using that technology to shop or do business.

Given this context, we posed three research questions centered on the top five ASEAN countries besides Singapore — Malaysia, Indonesia, the Philippines, Thailand, and Vietnam — and used Singapore as the digital benchmark:

How long would it take for country X, at its current course and speed, to get to Singapore’s current state of digital evolution?

Considering the two key sets of levers that executives and digital innovators can use (increasing online access and enhancing electronic financial transactions capability), which of the two is more effective in closing the gap?

If one were to set a time frame as a target for playing digital catch-up with Singapore, what is the change that one would need to accomplish?

Of the 83 indicators that were used to create the Digital Evolution Index, we selected nine indicators that would help gauge the two key levers. A combination of the two provides a measure of the path to “digital inclusion.” Here’s what it looks like:

What is the ability to get online? Do people have access to the internet? Answering this question requires determining what percentage of the population is using the internet with computer access and wired broadband subscriptions, with mobile networks, and with mobile cellular and internet subscriptions.

What is the ability to transact online? Do people have access to financial networks that enable cashless transactions? What percentage of the population has an account at a financial institution, and what percentage has payment cards, either credit or debit?

At current course and speed, to reach Singapore’s levels of digital evolution, it would take Indonesia an estimated 13 years, the Philippines 12 years, Vietnam 10 years, Thailand nine years, and Malaysia eight years. Given the revised 2025 targets envisioned for the region, our analysis indicates that achieving these targets in the areas of digital evolution presents a big challenge.

Next, we wanted to understand whether giving online access or electronic financial capability had a differential impact on the metric of “getting to Singapore.” We learned that, in general, giving a certain number of people online access is superior to giving the same number of people financial transaction capability. For example, in the case of the Philippines, if we were to engage 25 million more users in digital access, it would take the country nine years to reach Singapore’s current level of digital development. If we engaged the same 25 million users with access to financial transactions, by applying the analytical framework for digital inclusion above, it would take the country 11 years to reach Singapore’s level.

What happens if we split the difference? What would need to be true for the country to get to the Singapore benchmark in 10 years? We analyzed the data and tested this idea in a number of conversations with executives and policy makers around the Philippines, with leaders representing four different industries — telecom, retail, logistics, and financial services. The chart below shows the combination of factors that would be necessary for the Philippines to reach Singapore’s level of digital evolution in 10 years.

Our experiment with the ASEAN region offers insights relevant to any nation that is interested in digital catch-up:

Improving access factors has a greater impact on digital evolution than improving transaction factors. Ideally, both levers should be deployed in combination.

In order to make progress at a national level, policy makers and business leaders should coordinate on a goal designed around a benchmark country that is relatable in some way — e.g., a “get to “Singapore” target — and work backward to identify how much change is needed in individual factors and which economic actors (government/policy maker, telco, financial services company, etc.) must take action, then set individual targets or commitments accordingly.

Note: This research was conducted with support from the MasterCard Center for Inclusive Growth. The conclusions do not necessarily reflect the views of MasterCard.